Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

China is again fully focused on cooling its overheated property market and investors are trying to decipher what impact that will have on alternative asset classes. Some are betting money that flees real estate will find its way into the stock market. Statistics, history and other analysts suggest that a more likely target may be Hong Kong apartments.

JPMorgan Asset Management has been buying mainland Chinese shares in anticipation that a crackdown on real-estate lending, along with lower valuations, will draw investors to equities, Bloomberg News reported Wednesday. Credit Suisse Group AG analysts took the same tack in a research note earlier this week.

While the idea is logical and this outcome has happened on some occasions in the past, it doesn't fully pass the numbers test. A regression analysis of property prices in China and movements in the Shanghai Composite Index yields a low correlation that is statistically insignificant.

Uncommitted Relationship

Over the past 10 years, stocks have sometimes risen when Chinese property drops, but it's not consistent

Source: Bloomberg

This is one of the many ways in which China is different from the rest of the world. People in Asia's largest economy tend to look at property as their main investment and stocks as a side-gamble where you can lose big or strike it rich. That means that if a new apartment purchase is being deferred because prices are dropping, the money won't necessarily find its way into stocks (one of the few available avenues in a nation with limited investment options).

Analysts at Bank of America Corp. are among those suggesting that funds may instead flow into property in Hong Kong, a former British colony that retains its own currency and customs controls.

China-Hong Kong correlation

-0.15

That's a relationship that does stand the numbers test. A regression of 10 years of monthly property data from Hong Kong and China shows there's a 0.15 negative correlation between the two. In other words, if home prices in Shanghai and Shenzhen are falling, they're more likely to be rising in Hong Kong.

Other Side of the Pendulum

Historically, when China's property prices drop, Hong Kong's go the other way

Source: Bloomberg

That makes sense: Chinese investors will still want to buy property, just not in the mainland. There's plenty of anecdotal evidence that this is already happening. A surge in purchases of Hong Kong homes by non-residents has helped drive an 11 percent rebound in the city's real estate prices. Analysts and developers say mainland Chinese are the biggest foreign buyers, Bloomberg News reported last week.

How far this trend will run may depend on the success of China's efforts to clamp down on capital outflows. To buy an apartment in Hong Kong, a Chinese investor first needs to get the money offshore.

Hong Kong already ranks as the world's most unaffordable property market and authorities have been trying to cool prices there too, so another wave of mainland buying may be the last thing the city needs. At least developers and landlords can look forward to a windfall.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

A figure of 1 would indicate a perfect positive correlation while -1 expresses a perfect negative correlation between two variables.